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Through the Ages

Dennis Friedman

WHEN I WAS IN MY 20s, I was lucky to work for a company that offered a pension plan—and that put me on the road to retirement. Today, unfortunately, company pensions are rare. How can you ensure a comfortable retirement? Try shooting for these age-related milestones:

Age 25. Start saving at least 15% of your gross income. As I mentioned in an earlier article, a Fidelity Investments study found that if you save 15% of your gross income every year from age 25 through 67, and you also receive Social Security, that should ensure you have enough to maintain your current standard of living once you retire.

Age 30. By this point, aim to have amassed retirement savings equal to at least one times your gross income, or so suggests guidelines from Fidelity. Invest that money in low-cost, broad-based index funds. These funds take away one of the biggest investment risks—underperforming the market averages.

Age 40. This might be a good time to purchase umbrella insurance, which can provide additional liability coverage, on top of what’s offered by your auto and homeowner’s policies. Umbrella insurance also covers incidents your homeowner’s insurance doesn’t, such as slander and defamation lawsuits.

Think of your umbrella policy as asset protection for your growing wealth. By this point, aim to have retirement savings equal to at least three times your salary.

Age 50. If you’re lagging behind your retirement savings goal, you can start making catchup contributions to retirement accounts. Under the catchup rules, those age 50 and older can contribute an additional $6,500 each year to a 401(k) and $1,000 to an IRA. How do you know if you’re on track for retirement? By age 50, you’d want to have at least six times your gross income set aside for retirement.

Age 59½. If you need to tap your retirement accounts, this is the age at which you can start taking penalty-free withdrawals from your IRA or an old 401(k).

Age 60. According to AARP, the best time to buy a long-term-care (LTC) policy, assuming you’re healthy and eligible for coverage, is between ages 60 and 65. At this juncture, the monthly premiums should still be affordable. If you have ample retirement savings, you might drop your disability and term-life insurance coverage, and then redirect those premium dollars to an LTC policy.

An estimated 70% of Americans who reach age 65 will need long-term care at some point during their remaining years, though the need for care is often relatively brief. Some seniors receive help from family members and friends. Still, roughly 50% will need some paid caregiving services. According to Genworth’s 2021 Cost of Care Survey, a private room in a nursing home costs an average $297 a day, or $9,034 per month.

Fidelity suggests that, as of age 60, retirement savers should have at least eight times their gross income socked away. Falling short? You might plan on downsizing or, alternatively, staying in the workforce for longer or working part-time in retirement.

Age 65. You can apply for Medicare, starting three months before your 65th birthday. You might enroll in federally run Medicare or opt for Medicare Advantage, the private insurance alternative.

If you’re enrolling in traditional Medicare and will need to change doctors, don’t wait until you receive your Medicare card before scheduling an appointment. Because of the shortage of primary care physicians, you should make an appointment while your Medicare application is being approved. You can schedule your doctor’s appointment for after your Medicare start date, and then provide them with your Medicare number prior to your appointment. Otherwise, you might have to wait months to see your new doctor. This is especially important if you’re on medication or need a medical procedure.

You should also keep in mind that you can’t get a Medigap policy or enroll in a prescription drug plan until you have your Medicare number. After my Medicare application was approved, it took me two additional weeks to get approval for these two plans.

Age 67. For Social Security purposes, this is the full retirement age for those born in 1960 and later. By now, if you have at least 10 times your gross income saved, your nest egg—coupled with Social Security—should allow you to maintain your current lifestyle if you opt to retire.

Age 70. If you haven’t yet, now’s the time to apply for Social Security. Only 7% of men and 8% of women wait until age 70. But if you can afford to wait, you’ll receive an inflation-adjusted amount equal to some 77% more than the benefit you would have got at age 62, the earliest possible age to claim Social Security.

That larger check reduces the risk that you’ll reach the end of your life with a depleted portfolio and not enough income to cover your expenses. It’ll also give you more confidence to spend freely, something many retirees are afraid to do in their golden years.

Overall, Social Security is the best income annuity on offer. Unlike annuities sold by insurance companies, Social Security offers inflation protection, it’s taxed less heavily and there’s less credit risk.

What if you’re looking for additional income? An immediate fixed annuity might be right for you. Some financial advisors recommend waiting until your 70s to purchase one, so you get a larger payout. The payout is based on your life expectancy at the time of purchase. The older you are, the more income you’ll get.

By waiting, it also gives you a chance to see how your health holds up through your early retirement years. If your health is failing, you might decide it’s not for you. You could also find you’re spending less than you planned in retirement and thus you don’t need the extra income.

Age 72. Start taking required minimum distributions (RMDs) from your retirement accounts no later than April 1 of the year after you reach age 72. If you fail to take your RMD on time, you could be penalized 50% of the required amount not withdrawn. One exception: RMDs aren’t required from Roth IRAs.

Dennis Friedman retired from Boeing Satellite Systems after a 30-year career in manufacturing. Born in Ohio, Dennis is a California transplant with a bachelor’s degree in history and an MBA. A self-described “humble investor,” he likes reading historical novels and about personal finance. Check out his earlier articles and follow him on Twitter @DMFrie.

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